After lagging nearly all global markets in 2011 with a 44% loss, VNM has bounced back with a vengeance. It rallied 26% last year vs. 19% for EEM. It's been the No. 1 performing country ETF the past week, month and three months, vaulting a 9%, 22% and 26% over those periods. VNM is trading above both its 50- and 200-day moving averages, indicating a solid uptrend.

VNM sports a robust IBD Relative Strength Rating of 83, indicating it's outpacing 83% of the stock market. Its A Accumulation-Distribution Rating (on an A-to-E scale with A the highest) shows big institutional investors are heavily buying shares rather than selling.

Neena Mishra, ETF research director at Zacks Investment Research in Chicago, believes the Southeast Asian nation is a great long-term investment.

She wrote in a report:

"Political and economic reforms (Doi Moi) launched in 1986 transformed Vietnam from one of the poorest countries in the world, with per capita income below $100 (annually), to a lower middle-income country with per capita income of about $1,300 in 2011. The poverty ratio has fallen from 58% in 1993 to about 14% in 2010.

Foreign Investment Influx

"Even though Vietnam is a communist country, they have market friendly policies. Foreign capital has flowed into the country as a result of the reforms. The country has received more than $6.5 billion in foreign direct investment in each of the last five years.

Gross Domestic Product Growth

"Vietnam's GDP increased by more than 8% annually from 2003 to 2007, before the global recession hit the export-oriented economy. Per IMF estimates, the economy slowed down to 5.1% in 2012 from 5.9% in 2011 but will rebound in 2013 to 5.9%.

"Positive demographics further support future growth prospects. The population is 91.5 million with a median age of about 28 years. Most of the young people are educated and can speak English. Unemployment rate at about 2% is among the lowest in the world.

"According to a study by Ernst & Young, Vietnam is expected to grow by almost 6% over the next 25 years and per capita income is expected to grow by more than six times over the same period.

After lagging nearly all global markets in 2011 with a 44% loss, VNM has bounced back with a vengeance. It rallied 26% last year vs. 19% for EEM. It's been the No. 1 performing country ETF the past week, month and three months, vaulting a 9%, 22% and 26% over those periods. VNM is trading above both its 50- and 200-day moving averages, indicating a solid uptrend.

VNM sports a robust IBD Relative Strength Rating of 83, indicating it's outpacing 83% of the stock market. Its A Accumulation-Distribution Rating (on an A-to-E scale with A the highest) shows big institutional investors are heavily buying shares rather than selling.

Neena Mishra, ETF research director at Zacks Investment Research in Chicago, believes the Southeast Asian nation is a great long-term investment.

She wrote in a report:

"Political and economic reforms (Doi Moi) launched in 1986 transformed Vietnam from one of the poorest countries in the world, with per capita income below $100 (annually), to a lower middle-income country with per capita income of about $1,300 in 2011. The poverty ratio has fallen from 58% in 1993 to about 14% in 2010.

Foreign Investment Influx

"Even though Vietnam is a communist country, they have market friendly policies. Foreign capital has flowed into the country as a result of the reforms. The country has received more than $6.5 billion in foreign direct investment in each of the last five years.

Gross Domestic Product Growth

"Vietnam's GDP increased by more than 8% annually from 2003 to 2007, before the global recession hit the export-oriented economy. Per IMF estimates, the economy slowed down to 5.1% in 2012 from 5.9% in 2011 but will rebound in 2013 to 5.9%.

"Positive demographics further support future growth prospects. The population is 91.5 million with a median age of about 28 years. Most of the young people are educated and can speak English. Unemployment rate at about 2% is among the lowest in the world.

"According to a study by Ernst & Young, Vietnam is expected to grow by almost 6% over the next 25 years and per capita income is expected to grow by more than six times over the same period.

Manufacturing Growth

"Vietnam continues to be the main beneficiary of the migration of low-end manufacturing out of China as the producers try to take advantage of wages that are about half of that in China. The shift in China's policy to focus more on domestic consumption will also benefit Vietnam as an outsourcing center.

"We may add that Vietnam now faces strong competition from neighbors like Bangladesh, Myanmar and Cambodia in low-cost manufacturing. However, in recent years, the country has been somewhat successful in moving up the value chain by starting manufacture of higher-value products, in addition to its traditional export items of clothing and footwear.

Banking Reforms

"Last year, the government approved and published a broad plan for banking sector reform. The plan included merger of weak banks and recapitalization of the banking system. The government also plans to set up an asset management company to take over the bad debts from the banking system.

"The arrest of a prominent banking tycoon in August last year had rattled the stock market and the banking system, but it also sent signals to the foreign investors that the authorities were willing to make serious efforts to tackle the problem of corruption and mismanagement in banks and state-owned enterprises.

Accommodative Monetary Policy

"With inflation under control, the central bank now has more flexibility to lower rates in order to support growth. As expected by the market, the bank announced a 100-basis-point cut in the key rates last month (sixth rate cut of the year).

"With an improving trade balance, the country may actually post a current account surplus for 2012 (per the World Bank) after years of persistent current account deficits.

Investment Risks

"The economy still suffers from some structural problems, like inefficient and wasteful public enterprises, which account for about 40% of output, an undercapitalized banking sector and a high trade deficit.

"2011 was a bad year for the economy as growth slowed, inflation spiked (touching 23% in August 2011), and trade deficit worsened. As a result, the government passed a resolution to restrain credit growth and control inflation and the central bank raised rates several times.

"Economic activity suffered due to the aggressive rate hikes and the banks were saddled with bad loans. Later that year, the government announced a three-pillar economic reform program aimed at restructuring public and state-owned enterprises and the financial sector, as the top priorities for the next five years.

ETF Characteristics

"VNM tracks the Market Vectors Vietnam Index, which provides exposure to the publicly listed companies that are domiciled and listed in Vietnam or derive at least 50% of their revenues from Vietnam.

"VNM's 50% weight to financials is our main concern with this ETF, due to the health of the country's banks. In addition to being undercapitalized and faced with rising nonperforming assets, the financial system lacks transparency. It remains to be seen whether the reforms launched recently will be able to improve the health of the banking system."

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